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The Long and Short of it, week ending 08 July 2022

Posted: 12 July, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Healthcare , Technology

Publication Type: Market Commentaries

Stock markets moved higher last week with all 3 major stock indexes posting gains. The Nasdaq Composite Index strongly outperformed the S&P 500 Index and the Dow Jones Industrial Average, boosted by strong tech stock performance. Risk-on sentiment combined with growing expectations inflation my have peaked drove stock prices higher through Thursday. Wednesday’s FOMC minutes release confirmed the Fed’s commitment to fight inflation even at the risk of recession, spurring stock prices - especially tech stock prices – higher as inflation concerns mitigated. Friday’s stronger-than-expected Non-Farm payroll report somewhat renewed inflation concerns and increased expectations of aggressive Fed tightening but also contributed to the belief the economy may be strong enough to avoid a recession even in the face of concerted Fed action. The 10-year Treasury rate increased 19bps last week driven almost entirely by higher real rates. 10-year inflation expectations were almost unchanged at 2.37%. At week’s end, the S&P 500 Index gained 1.9% to 3,899.38, the Nasdaq Composite Index rose 4.6% to 11,635.31, the Dow Jones Industrial Average increased 0.8% to 31,339.20, the 10-year U.S. Treasury rate increased 19 bps to 3.08% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 1.7%.

European stock markets also ended the week higher bouncing off Tuesday’s lows. Higher energy prices initially bolstered oil and gas stocks moving both the STOXX 600 and FTSE 100 Indexes higher Monday. Tuesday’s reversal in oil prices (Brent crude oil prices fell more than 9%) combined with striking offshore workers in Norway moved oil and gas stock prices sharply lower while ramping up recession fears on the back of surging natural gas prices (as a result of the striking workers in Norway), pushing both the STOXX 600 and FTSE 100 Indexes over 2% lower. Stock prices rose the remainder of the week, buoyed by a number of factors including Norway’s Labour Ministry interceding to end the strike, rising oil and copper prices, UK PM Johnson resigning, a weaker euro and British pound and rallying U.S. stock markets. Friday’s stronger-than-expected U.S. Non-Farm Payroll report increased concerns of continued aggressive Fed tightening but also added to sentiment that the U.S. economy may be strong enough to avoid recession, supporting European stock markets. The 10-year UK government rate and the 10-year Bund rate moved higher last week with both increasing 11 bps. At week’s end, the FTSE 100 Index increased 0.4% to 1,196.24, the STOXX 600 Index rose 2.5% to 417.12, the 10-year UK government rate rose 16 bps to 2.24%,